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It is settled law that the trustee of any trust is unequivocally charged with the
duty to invest the assets of the trust. However, in south Africa in the past, this
duty has been qualified, with avoidance of risk seen as the trustee's number
one priority when investing. The legislature and the judiciary focused on
providing safeguards for beneficiaries and trustees were to avoid all risk to the
capital of the trust. This reflected the attitude of the 19th and first half of the
20th century when the value of money had remained steady over long periods
and inflation was non-existent.
However, changes began to occur in world economics, such as the devaluing
of currencies and progressive inflation. Despite these harsh economic
realities, the courts continued for some considerable time to favour investment
in interest-bearing securities.
Most of the time trustees erred on the side of caution, following the judiciary's
lead. Unfortunately, as it will be pointed out, this meant that the trustees were
blind to their primary task, which is and always has been, to do the best for
the beneficiaries. Trustees will have to expose the assets to at least some
risk in order to outperform inflation, as the traditional investments are no
longer suitable. This change in investment thinking was confirmed in South
Africa in Administrators, Estate Richards v Nicol and Another 1999 1 SA 551
(SCA).
Every trustee is, therefore, faced with a dilemma when engaging in
investment decision making. He or she is under a duty to invest with the
minimum of risk and also to balance the interests of competing beneficiaries.
The trustee is under a duty to balance the risk against the rewards, always
bearing in mind that he or she must "preserve the trust fund rather than
overtly seek its advancement".
Any exercise of the duty to invest will be limited by the provisions contained in
the trust instrument as well as those provided for by statute, particularly the
duty of care.
Change occurred in English Trust Law with the introduction of the Trustee Act,
2000. The Trustee Act removes the constraints of the previous legislation and
imposes positive obligations on trustees in their place, which reflect the reality
of modern investment practices. Under section 1 of the Trustee Act a new
uniform duty of care is created to guide trustees when performing their
functions under the Act or a trust instrument. This uniformity is aimed at
providing certainty and consistency in respect of the standard of competence
and behaviour expected of trustees in all situations. The statutory duty of
care is founded on the premise that there is a baseline standard of care
expected of all trustees when investing trust assets. This standard is that of
the "reasonable trustee", as referred to in section 1 (1 ) of the Trustee Act.
The law in South Africa does not provide sufficient guidance for trustees,
particularly in the area of trustee investment. It could certainly benefit from
the sort of review that led to the changes in the English law.